True cost of carousel fraud questioned

Questions have been raised over the latest estimates on the cost of carousel
fraud to the UK economy, with industry and the taxman disputing them.

In the first quarter of 2006, £10bn worth of the fraud was committed using
the carousel, or missing trader, system, compared with £6.5bn in the first
quarter of 2006, according to the latest research by the Office of National
Statistics.

But HMRC doesn’t accept these figures, putting the loss to the Exchequer at
between £1.2bn and £1.9bn.

Advisers also refute the latest figures. Chas Roy Chowdhury, head of tax at
ACCA, said: ‘You do wonder how they are able to put figures on this. And they
are ever-spiralling out of sight.’

Tax advisers say if the government was determined to stamp out carousel
fraud, it could support moves to harmonise VAT across the European Union. ‘The
only way to combat this is to have a single VAT system within the EU,’ said
Chowdhury.

Vincent Cable, shadow treasury spokesman for the Liberal Democrats, also
called for closer cooperation between the European Union members to harmonise
the VAT system. In the meantime, he said, there needed to be a concentration of
resources to stamp out this type of fraud.

The ONS has estimated that carousel fraud will exceed £30bn this year – 15
times the level of 2004.